While Jamie Dimon explained to Congress this week how his bank lost a billion dollars in a single trade, the world collectively held its breath waiting for the other shoe to drop in Italy, Spain and Greece. Europe is seemingly following the USA in providing quantitative easing by printing more currency — and it doesn’t take a Mensan to figure out that when the supply of something is unlimited, its value soon diminishes.
Some say money is the root of all evil; but as world economies teeter, adding more money is the lesser of two evils. Funny terms such as QE1, QE2 and “the twist,” only camouflage their meaning. Currencies are literally flying off the printing presses. And after the cows are already out (along with the horses, pigs, goats and chickens), Congress tries to slam shut the gate with unprecedented legislation and regulation that threatens to drive up costs and virtually put a stranglehold on all of finance.
Those who survive and prosper in the next decade will do so by seizing the opportunity clearly in front of them. Everything the U.S., and now other governments around the world, are doing is rocket fuel for hyper inflation in the future. The early warning indicators already confirm inflation: college tuition is up 15% in less than two years; World Bank Food prices soared 8% in just four months; the price of gas and diesel and even postage stamps keeps rising annually. Even basic commodities like soybeans and corn are up over 60% in just two years.
And with mega-high national debt levels touching $16 trillion, rising interest rates are not unlikely. With higher interest rates, fewer Americans can afford or even qualify for a mortgage. Declining home prices evaporate what’s left of any equity in property values, and woe to the investor who has money in long-term fixed or indexed annuities with a market value adjustment (MVA) clause. The MasterDex 5 and 10 contracts have a MVA and are two of the most widely owned annuities in America (just ask Glen Neasham).
Furthermore, on June 1, 2012, eyebrows raised when the yen in Japan and the yuan in China bypassed the U.S. dollar in value. Simultaneously, job creation faltered last month, sending the unemployment rate higher. In times like these, how can your clients (and yourself) survive, much less prosper?
I’ll let you in on a secret: Information and education create opportunities from obstacles.
Recommending a single asset class that is merely the “cleanest dirty shirt” will bury you and your clients in underperforming, regretful investment decisions. Settling for fixed annuities as a long-term plan for your practice and refusing to expand into other areas, such as alternative assets via several distribution modes, is dangerous. Obviously those requiring a securities license are, in my opinion, the logical option and will help your clients comfortably expand their risk profiles and investment time horizon. Today is the day for you to begin seeking out the assets, education and licensing to protect and propel your practice.